As the reaction of Vladimir Putin in his address on 18 March show, European criticism of Russia has so far had little effect. After the annexation of Crimea, the EU must now send a clear message that the annexation or destabilisation of eastern Ukraine by Russia is inacceptable. The EU sanctions that have already been agreed, including a first phase of freezing the visa dialogue and PCA negotiations with Russia and a second phase of visa bans and freezing banking accounts of Russian officials responsible for the crisis, have been more or less symbolic. The third phase of sanctions, which will include economic measures and will come into effect if Russia uses force or further escalates the situation in the eastern part of Ukraine, must be different. It is important that these sanctions really bite.
The EU must find a compromise between its economic interests and political interests. The interdependence between Russia and the EU makes it difficult to stop imports of oil and gas. Overall the EU gets only one third of its oil and gas from Russia, but some Central Eastern European countries get 100 percent of their oil and gas from Russia. While gas is more difficult for them to get from alternative sources, gas makes a much smaller contribution to the Russia economy than oil. The lesson of this crisis is that while diversification is important, the EU also needs long-term investment in alternative pipeline and LNG infrastructure. In the future, the EU could get additional volumes of gas from the Caspian region and maybe Iran as well as from the Mediterranean Sea. But the EU should also discuss the diversification of its energy mix.
Russia’s interest is above all in technical know-how, direct investment and private credit by international banks. At the beginning of the Crimea crisis, Russian companies lost $60 billion in a few days, according to the Bank of Finland. At the same time, inflation is increasing and capital is fleeing. The economic growth forecast for Russia has been lowered to less than 1 percent for 2014 because of the crisis. However, according to polling by the Levada Center, Putin’s popularity has risen to more than 70 percent and economic questions play no role in the Russian public discourse. But if the economic situation will further deteriorate, public support for Putin will decline. Although Putin’s current policy is popular, only 32 percent of the Russian’s would elect Putin for a fourth presidential term.
Germany will be crucial. In the last few weeks German companies and lobby organisations such as the Ostausschuss (the Eastern Committee of German businesses) have spoken out against sanctions. But Russia is more dependent on Germany than vice versa: Russia is Germany’s eleventh-largest trading partner but Germany is Russia’s third-largest. Germany also gets 36 percent of its gas and 39 percent of its oil from Russia. But although these percentages are lower than some central, eastern and south-eastern member states, the volumes Germany would need to replace are much higher. Germany has the biggest storage capacity in Europe and could live for three months without Russian gas. Other countries such Bulgaria and Italy have neither the storage capacity nor alternative sources.
The current crisis is a litmus test for Germany’s co-operative approach towards Russia. The partnership for modernisation – the centerpiece of this approach – had already failed with the return of Vladimir Putin. But the crisis has also revealed the limits of Chancellor Angela Merkel’s influence on Putin. For the last two years, there has been increasing frustration in Germany at Putin’s lack of interest in modernising and democratising Russia. But the current crisis has driven Germany and Russia even further apart. While most of the German political elite still think that there is no alternative to co-operation with Russia, public and international pressure leave the German government no alternative to supporting sanctions.
Merkel would be more willing to support sanctions than Foreign Minister Frank-Walter Steinmeier. At the same time, she has little interest in taking the lead in Europe on the crisis because the political risks are high. She will only take more responsibility if she cannot resist international pressure and if the crisis might have a serious impact on the economic situation in Germany and Europe. Sanctions are not popular: according to one recent poll only 24 percent of Germans support sanctions against Russia. But the longer Putin fails to react to German proposals to solve the crisis, the more Germany will support sanctions and harden its position. The German political elite is searching for a new way to deal with Russia. This crisis might help to bring it closer to a more realistic and tougher Russia policy that other EU member states would support.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of its individual authors.